Wednesday, February 01, 2006

Eddie Cross: The Crunch has Arrived

When I think about what is happening right now I wonder - when will the crunch come? This morning I was in one of the largest food companies in Zimbabwe. Parked outside were long lines of 30 tonne trucks - all empty, the drivers standing by waiting for food aid to arrive. The company staff told me that they had not had a delivery of maize for four weeks. Other millers tell the same story. In town I passed a man with a small sedan vehicle - he was selling 10 kg bags of maize meal at Z$350 000 per bag. He was surrounded by a couple of hundred desperate customers.

Bulawayo has been without maize meal for the past fortnight - the SundayNews headlined the shortage this last weekend. The GMB has a national monopoly over the purchase, storage and sale of raw maize in Zimbabwe. We consume about 1,2 million tonnes a year as maize meal for human consumption - it is the national staple food. That is 110 kilograms of maize per capita.

The financial numbers of this exercise are huge. A tonne of maize from South Africa lands here in Bulawayo at about R1500 per tonne. At official exchange rates this is Z$24 million dollars per tonne. The GMB sells it at Z$600 000 a tonne - a direct subsidy of Z$23 400 000 per tonne - a 97.5 per cent subsidy. Take into account the costs of the GMB - interest, transport, and staff, silo management costs, unloading and loading, sales costs and you are probably looking at a direct subsidy per tonne of Z$28 million per tonne -Z$33,6 trillion a year or nearly a third of total revenues from all taxes.

This is clearly not sustainable and how the Government will deal with this is anyone's guess but the profiteering going on in the trade is equally stunning. That 10 kilogram bag of maize meal probably used 11 kilos of maize at a cost to the miller of Z$6 600. His gross margin is Z$343 400 per bag -his costs probably about Z$70 000 leaving him a profit of Z$273 400 or 78 per cent of his selling price. Not bad.

If they were to charge an economic price for maize of Z$28 000 a kilo, the product would probably end up on the shelves at about Z$413 000 for a 10 kilo bag. So the bulk of the subsidy on maize is actually going to the middlemen. I run a supermarket as one of my concerns, we cannot buy maize meal from the GMB mills and have to buy from intermediaries who put a substantial mark up on the product. This sort of thing is going on across the country.

So we are left to wonder - when will the crunch come - Maize imports at US$250 a tonne will require us to find US$350 million this year for our net import needs. If the State cannot find this money - we will go hungry. If they do find it and continue to sell at present prices, then the subsidy to the GMB will, by itself, push the budget deficit over 20 per cent of GDP. This is simply not sustainable.

By my own calculations inflation in January is well over 900 per cent and still rising. Inflation, a runaway budget deficit, the impossible demands of the patronage system in a shrinking economy, a hungry angry people. We are close to breaking point in every sense. Perhaps the crunch has come.